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Gold Did Its Job

Commentaries & Views

(Kitco News) - Gold has once again proved a viable diversifier in a balanced portfolio. As investors scrambled to meet margins on equity calls and found liquidity lacking as global markets were swinging widely, gold provided the liquidity for investors. The catalyst of higher yields and fears of accelerating inflation caused analysts to re-examine equity valuations, and the large expected rise in the U.S. budget deficit on the back of the tax cuts and proposed infrastructure plan leaves serious questions on what higher yields will do to debt-financing costs. At a minimum, we would expect the Fed to be more conservative on the trajectory of interest-rate increases, which should translate into a weaker dollar in the medium term. We remained constructive on gold last week, seeing the weakness as a liquidity event and not a fundamental reversal. The key pivot was the euro’s ability to hold and bounce of the 1.22 euro/dollar print. It appears the equity markets have stabilized and a positive close today may be the signal that an interim low was put in last week. Traders will look to tomorrow’s inflation numbers. Should we see another spike in inflation, that may push the 10-year back closer to 3%, which would be a negative for both equity and gold prices. Gold support rests at $1,322, with resistance at $1,332, with a break here suggesting a minimum print of $1,338.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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